Power Integrations (POWI) 8-K Power Integrations Announces Second Quarter 2003 Financial Results

Exhibit 99.1

News Release… [LOGO OF POWER INTEGRATIONS, INC.]

Contact: John Cobb Chief Financial Officer Power Integrations, Inc. (408) 414-9655   Ellen Brook or Jim Fanucchi Stapleton Communications Inc. (650) 470-0200 ellen@stapleton.com or jim@stapleton.com

Power Integrations Announces Second Quarter 2003 Financial Results

Year-Over-Year Net Income Up 95 Percent on Revenue Increase of 10 Percent

SAN JOSE, Calif. – July 23, 2003 – Power Integrations, Inc. (NASDAQ:POWI) today announced financial results for its second quarter ended June 30, 2003.

Net revenues for the second quarter of 2003 were $29.8 million compared with $27.1 million in the second quarter of 2002 and $29.1 million in the first quarter of 2003. Net income for the second quarter was $4.2 million, or $0.13 per diluted share. This compares with net income of $2.1 million, or $0.07 per diluted share in the second quarter of 2002 and net income of $3.9 million, or $0.13 per diluted share in the first quarter of 2003.

“We achieved strong financial results in the second quarter, despite significant weakness in the cell phone market, which clearly demonstrates that our diversification strategy is working,” said Balu Balakrishnan, president and chief executive officer of Power Integrations. Revenue growth was driven primarily by market penetration in the consumer and computer markets, which more than offset substantial weakness in the communications market.

“We dramatically improved our manufacturing cost structure in the last year,” said Mr. Balakrishnan. “These improvements enabled our net income to nearly double while revenue grew 10 percent year-over-year.”

Other highlights include:

• High-level of design wins for TOPSwitch-GX and TinySwitch-II in all our end markets.

• DPA-Switch now has low-volume design wins in all four targeted applications: telecom/networking infrastructure, digital phones, servers, and industrial.

• Started production shipment to a top 10 cell phone OEM on a high-volume LinkSwitch design, which replaces a linear transformer. This is a new end-customer for Power Integrations.

• PC standby related revenue increased 40% year-over-year, primarily driven by the one-watt energy efficiency initiative.

• Added a record 10 U.S. patents, bringing the totals to 70 U.S. and 58 foreign patents. This represents an increase of 41 U.S. patents since the beginning of 2002.

Future Outlook

The following statements are based on current expectations. These statements are forward-looking and actual results may differ materially.

The company expects revenues in the third quarter to increase 10 to 14 percent sequentially. Gross margin is expected to be in the range of 48 to 49 percent. Operating expenses are expected to be relatively flat sequentially. Earnings per share in the third quarter are expected to be in the range of $0.14 to $0.16.

Based on the latest end-market information, the company expects 2003 revenue to increase 15 to 20 percent. Gross margin for the year is expected to be in the range of 49 to 50 percent. Earnings per share are expected to be in the range of $0.55 to $0.60. Revenue mix by market for 2003 is now expected to be: Communications 37 percent; Consumer 27 percent; Computer 23 percent; Industrial 8 percent; and Other 5 percent.

Conference Call

Power Integrations will broadcast its conference call discussion of its second quarter fiscal 2003 financial results and other developments for the company live over the Internet on Wednesday, July 23, 2003, beginning at 1:30 P.M. PT (4:30 P.M. ET). Interested parties may access the conference call over the Internet through the Investor Relations section of the Power Integrations web site at www.powerint.com. To listen to the live call, please go to the web site at least 15 minutes early to download and install any necessary audio software. A replay of the conference call will be indexed and archived on the company’s site and will be available two hours following completion of the event.

In addition, participants can access the conference call by dialing (800) 289-0468. A replay of the call will be available until August 6, 2003. To access the recording, please dial (888) 203-1112. The passcode for the replay is 149385.

Safe Harbor Statement

This press release contains forward-looking statements, which reflect management’s current forecast of the company’s future business and financial performance. These forward-looking statements are based on current information, which we have assessed, but which by its nature, is subject to rapid and even abrupt changes. Forward-looking statements are denoted by the use of such words and phrases as, “expect”, “outlook” and similar words and phrases that look toward future events or performance. The company’s actual results could differ materially from those projected or implied by our forward-looking statements due to risks and uncertainties associated with the company’s business. These risks include, but are not limited to, changes and shifts in customer demand away from products that integrate the company’s ICs to products that do not; our ability to maintain and establish strategic relationships; the effects of competition; the risks inherent in the development and delivery of complex technologies; our ability to attract, retain and motivate qualified personnel; the emergence of new markets for our products and services; our ability to compete in those markets based on timeliness, cost and market demand; and our limited financial resources. In addition, new

product introductions are subject to the risks and uncertainties that typically accompany development and delivery of complex technologies to the market place, including product development delays and defects. We more fully discuss these and other risk factors in the company’s most recent report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2003. The company is under no obligation (and expressly disclaims any obligation) to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

About Power Integrations

Power Integrations, Inc. is a leading supplier of high-voltage analog integrated circuits for use in AC to DC and DC to DC power conversion. For more information, visit the company’s web site at: www.powerint.com or contact the company at 5245 Hellyer Ave., San Jose, Calif. 95138; (408) 414-9200.

POWER INTEGRATIONS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)

	THREE MONTHS ENDED JUNE 30						SIX MONTHS ENDED JUNE 30
	2003			2002			2003			2002
NET REVENUES
Product sales	$	29,377		$	26,861		$	58,106		$	50,251
License fees and royalties		423			287			784			567
Total Net Revenues		29,800			27,148			58,890			50,818
COST OF REVENUES		14,670			15,758			28,686			29,126
GROSS PROFIT		15,130			11,390			30,204			21,692
OPERATING EXPENSES:
Research and development		4,181			3,648			8,265			7,255
Sales and marketing		3,919			3,645			7,965			7,047
General and administrative		1,804			1,548			3,431			2,981
Total Operating Expenses		9,904			8,841			19,661			17,283
INCOME FROM OPERATIONS		5,226			2,549			10,543			4,409
OTHER INCOME (EXPENSE):
Interest income and other		389			500			661			914
Interest expense		(2	)		(7	)		(5	)		(16	)
Total other income		387			493			656			898
INCOME BEFORE PROVISION FOR INCOME TAXES		5,613			3,042			11,199			5,307
PROVISION FOR INCOME TAXES		1,460			913			3,136			1,592
NET INCOME	$	4,153		$	2,129		$	8,063		$	3,715
EARNINGS PER SHARE:
Basic	$	0.14		$	0.08		$	0.28		$	0.13
Diluted	$	0.13		$	0.07		$	0.26		$	0.12
SHARES USED IN PER SHARE CALCULATION:
Basic		29,173			28,317			28,999			28,222
Diluted		31,060			29,873			30,762			29,619

POWER INTEGRATIONS, INC.

CONSOLIDATED BALANCE SHEETS

unaudited

( in thousands)

	June 30, 2003			December 31, 2002
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and short-term investments	$	116,881		$	109,400
Accounts receivable		11,126			8,522
Inventories		19,984			15,028
Deferred tax assets		6,064			6,064
Prepaid expenses and other current assets		1,871			1,672
Total current assets		155,926			140,686
PROPERTY AND EQUIPMENT, AT COST:
Machinery and equipment		43,052			38,133
Leasehold improvements		11,032			10,914
		54,084			49,047
Less: Accumulated depreciation		(31,386	)		(28,039	)
		22,698			21,008
	$	178,624		$	161,694
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of capitalized lease obligations	$	154		$	233
Accounts payable		5,849			7,727
Accrued payroll and related expenses		3,833			4,389
Taxes payable and other accrued liabilities		5,423			5,228
Deferred income on sales to distributors		3,238			2,718
Total current liabilities		18,497			20,295
LONG TERM LIABILITIES:
Long term leases		—			41
Deferred rent		759			725
Total long term liabilities		759			766
STOCKHOLDERS’ EQUITY:
Common stock		29			28
Additional paid-in capital		100,144			89,473
Cumulative translation adjustment		(117	)		(117	)
Retained earnings		59,312			51,249
Total stockholders’ equity		159,368			140,633
	$	178,624		$	161,694